Quiz Questions and Answers from our Directors’ Liability Seminar

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Thank you to everyone who took the time to attend our recent Directors’ Liability Seminar. We were overwhelmed with positive comments and are pleased that so many of you found it to be interesting and informative. As we received an enthusiastic response to our Quiz from those who attended in person, we are publishing the quiz questions and answers.

QUIZ QUESTIONS

You are a director of a condo corporation and you have now been sued personally by an irate group of owners. What do you do once you are served with the Statement of Claim?

(a) Contact the Corporation’s lawyer to start a harassment claim against the owners.

(b) Hire the lawyer that drew up your grandmother’s Will.

(c) Call the Corporation’s insurer.

(d) Prepare your own Statement of Defence.

2. The Board must decide whether a disabled owner is entitled to demand use of a disabled parking spot. What do you do?

(a) Call your lawyer for an opinion.

(b) Review the declaration and make a decision.

(c) Delegate the decision to the property manager. Surely he/she has dealt with this before!

(d) Ask your mother what she would do.

3. The Corporation needs a new walkway. Your brother-in-law is in the landscaping business and has offered to do the work at a discounted price. What do you do?

(a) Tell your brother-in-law that he is disqualified from even making a bid on this work.

(b) Aggressively promote him and his company to the other directors, without disclosing that he is your brother-in-law.

(c) Disclose your connection with him to the Board and allow the other Board members to make the decision.

(d) Disclose your connection with him to the Board and everyone on the Board (including you) votes.

4. What kind of insurance is a condo corporation required to maintain?

5. You are a director and due to some personal financial setbacks, you are in arrears with respect to one month’s common expenses and expect that you will not be able to make the next few payments. What should you be doing?

(a) Speak to the property manager and tell him there is no need to send a default letter or register a lien as you have verbally acknowledged the default.

(b) Notify the Board and the property manager and apprise them of the situation and acknowledge that you expect to be treated the same as all the other owners.

(c) Speak to all of the directors individually and try to persuade them that preferential treatment would be appropriate as you have fallen on bad luck.

(d) Sign an IOU.

6. You have just come back from a board meeting. As well as the usual board business matters, the Board also discussed some challenges caused by one owner who has been caught running around the condominium property with his pants down. Who can you share this information with?

(a) Your spouse, since you have a relationship with no secrets.

(b) All of the other owners, as they need to know what is going on in the building.

(c) No one, other than the other Board members and the property manager.

(d) All the women residents to warn them to be on the alert.

7. Which of the following is an appropriate subject of a by-law?

(a) Adding additional directors’ qualifications over and above what is specified in the Condominium Act.

(b) Providing for remuneration to be paid to the directors for the next four years.

(c) Limiting the directors’ liability so that the owners and the Corporation can never pursue any board member personally for any decision of the Board.

(d) All of the above.

8. In which of the following situations will there be no recourse to directors’ and officers’ liability insurance?

(a) Mistake.

(b) Wilfully turning a blind eye to an issue.

(c) Bad faith.

(d) All of the above.

(e) (b) and (c).

9. Midway through the year, it looks like there is not enough money in the operating account. What can you do?

(a) Dip into the Reserve Fund.

(b) Levy a Special Assessment

(c) You personally lend the Corporation the money required.

(d) Revise the budget for the balance of the current year and increase common expenses.

(e) (b) and (d).

10. You are a director who acts independently and contrary to Board resolutions. Which of the following are potential consequences?

(a) You will not be covered under Directors’ and Officers’ Liability Insurance.

(b) The other directors and the property manager will go crazy and try to figure out a way to oust you.

(c) You will breach your standard of care under the Condominium Act.

(d) All of the above.

QUIZ ANSWERS

1. (c) –Section 39 of the Condominium Act, requires that condominium corporations purchase and maintain directors and officers liability insurance unless such insurance is not reasonably available. Once a claim is made, which may be covered by insurance, you should notify the insurer as soon as possible and not take matters into your own hands.

2. (a) – Human rights issues are complicated and there may be no “one-size-fits-all” response to this issue. As the first step, the Board should be contacting its legal counsel for advice and the board should follow that advice.

3. (c) – Section 40 of the Condominium Act sets out the requirements when a Board member has a conflict of interest. While Section 40 deals with situations where both the proposed contract and the director’s interest in it are material, it is good practice for directors to disclose any conflict and abstain from voting, even if not material.

4. (d) – Sections 39, 99 and 102 of the Condominium Act set out the mandatory insurance requirements for a condominium corporation.

5. (b) – Board members have an obligation under the Condominium Act to act in good faith. Board members should not use their position in order to extract any personal advantage for themselves.

6. (c) – While owners are entitled to receive copies of the minutes of Board meetings (with confidential matters redacted), Board discussions should be kept confidential. Review your corporation’s by-laws to see whether there are confidentiality provisions to determine when or if board matters may be disclosed.

7. (a) – As set out in the Condominium Act, directors’ remuneration can only be fixed by by-law for a period not exceeding three years. If directors try to pass a by-law as contemplated in (c), it would not be valid, as the directors are acting in bad faith and not in the best interests of the corporation.

8. (e) – Directors who act in bad faith or wilfully turn a blind eye will be in breach of Section 37 of the Condominium Act and, for that reason, there may be no directors’ and officers’ liability insurance for such actions.

9. (e) – As set out in Section 93 of the Condominium Act, the reserve fund can only be used for the repair and replacement of the common elements and assets of the corporation and cannot be applied to operating expenses. The Board can either levy a special assessment in the current year, or revise the budget and increase common expenses for the balance of the year.

10. (d) – If it is determined that a director has breached the standard of care set out in the Condominium Act, this breach of the legislation will result in the director not being covered by directors’ and officers’ liability insurance. In addition, the other directors who are in compliance will try to oust you so that the corporation will have a properly functioning board.